EUR/USD Forecast: Euro edges higher toward stiff resistance area
- EUR/USD clings to modest daily gains above 1.0750 on Wednesday.
- The pair could face strong resistance at 1.0790-1.0800.
- ADP Employment Change and the ISM Services PMI from the US will be featured in the economic calendar.
EUR/USD trades in positive territory slightly above 1.0750 after posting small gains on Tuesday. The technical outlook points to a buildup of bullish momentum but the pair could struggle to clear the 1.0790-1.0800 area unless the move up is fuelled by a fundamental driver.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.45% | -0.42% | 0.68% | 0.00% | -0.10% | 0.24% | 0.62% | |
| EUR | 0.45% | -0.19% | 0.80% | 0.14% | 0.18% | 0.37% | 0.77% | |
| GBP | 0.42% | 0.19% | 0.99% | 0.34% | 0.39% | 0.56% | 0.95% | |
| JPY | -0.68% | -0.80% | -0.99% | -0.67% | -0.72% | -0.34% | -0.12% | |
| CAD | -0.00% | -0.14% | -0.34% | 0.67% | -0.10% | 0.23% | 0.62% | |
| AUD | 0.10% | -0.18% | -0.39% | 0.72% | 0.10% | 0.19% | 0.66% | |
| NZD | -0.24% | -0.37% | -0.56% | 0.34% | -0.23% | -0.19% | 0.41% | |
| CHF | -0.62% | -0.77% | -0.95% | 0.12% | -0.62% | -0.66% | -0.41% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
EUR/USD gained traction in the second half of the day on Tuesday as risk flows started to dominate the markets, making it difficult for the US Dollar (USD) to find demand.
Speaking at the ECB Forum on Central Banking, Federal Reserve (Fed) Chairman Jerome Powell noted that the disinflation trend was showing signs of resuming but reiterated that they need to be more confident before reducing the policy rate. Meanwhile, European Central Bank (ECB) President Christine Lagarde noted that they were 'very advanced' on the disinlftionary path and added that inflation in the Eurozone was heading in the right direction.
Later in the day, ADP Employment Change and the ISM Services PMI data from the US will be looked upon for fresh impetus.
The ISM Services PMI is forecast to edge lower to 52.5 in June from 53.8 in May. A reading below 50, which would show a contraction in the service sector business activity, could trigger a USD selloff and open the door for another leg higher in EUR/USD. On the other hand, a stronger-than-forecast PMI print could help the USD stay resilient against its rivals and limit the pair's upside.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart rose above 60, pointing to a bullish tilt in the short-term outlook. On the upside, the 200-day and the 100-day Simple Moving Averages (SMA) form key resistance area at 1.0790-1.0800. In case EUR/USD makes a daily close above this area and confirms it as support, 1.0840 (Fibonacci 23.6% retracement of the latest uptrend) could be seen as the next bullish target.
The 100-period SMA on the 4-hour chart aligns as interim support at 1.0730 before 1.0700 (psychological level, static level) and 1.0670 (Fibonacci 78.6% retracement).
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
